October 24, 2012

What you don’t know about Social Security can hurt you.

Social Security card on money

Because many of us are looking forward to our Social Security benefits at retirement age, it’s important to know how to maximize the benefits you’re entitled to, and that includes knowing some insider secrets on Social Security.

Social Security employees generally won’t give case-specific advice. So that means you need to do the research yourself.

Here are some little-known facts about Social Security.

A benchmark of 10 years. It takes 10 years of marriage to stake a claim to your ex-spouse’s Social Security benefits.

At the point at which the former spouses are eligible to receive benefits, they can claim either their own benefit or one-half of their previous spouse’s benefit, whichever is higher.

However, this benefit does not apply to those married less than 10 years, and there are no prorated benefits for someone married, for instance, for nine and a half years.

“Til death do us profit.” For a married couple married at least 10 years and then divorced, the benefit can be even better for the surviving ex-spouse if the higher-income earner dies.

Once the ex-spouse passes away, the surviving ex-spouse is treated just like a widow or widower.

A survivor who is at least 60 can collect the late spouse’s benefit, while the survivor’s own benefit is allowed to grow unclaimed until age 70, at which time the survivor can switch to that benefit if it is higher.

Benefits for minor children. A little-known Social Security benefit is that, in the case of a divorce, if a couple who has been married for 10 years or more has minor children and one parent begins collecting Social Security benefits, the children are each entitled to one-half of that benefit until they reach the age of majority (18), without diminishing the benefits of the original recipient and without proving a hardship need.

It is also not necessary for both spouses to be eligible for Social Security for this benefit to apply.

Funds must be used for the care of the children and may include paying for lodging, food, clothing and other expenses.

“Zero” years. In a survey conducted by the AARP, most older workers didn’t know how their Social Security benefits are calculated.

They erroneously believed that the five or 10 years in which they were highest paid would be used to calculate their benefits.

In truth, Social Security benefits are based on a 35-year average of covered wages, adjusted for inflation.

If you worked longer than 35 years, Social Security will use the highest 35 years. If you worked for less than 35 years, each year you are lacking will be averaged in as a zero.

As you approach time to claim benefits, if you find you’re close to 35 years (say 33 years of qualifying wages), you may want to work an extra two years to avoid those zeros.

Work with benefits. Many workers believe that working will reduce their retirement benefits. While that is true if benefits are received early, once full retirement age is reached, there is no reduction in benefits for working.

The Social Security website (www.ssa.gov) offers an explanation of how benefits are calculated, but it can be hard to follow. A simpler explanation can be found at the website sponsored by the National Endowment for Financial Education, www.myretirementpaycheck.org.

This article was originally posted on October 24, 2012 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at marketing@grfcpa.com.